Longtop Financial Technologies: Latest Chinese Disaster
May 24, 2011
Posted by Jody Eisenman | Filed under Uncategorized
Although the market managed to fall another 130 Dow points, Chinese investors were stunned with another SEC halt of a Chinese stock. Longtop, (symbol: LFT) a software company catering to the PRC (People’s Republic of China) was actually halted last Tuesday. However, today they were struck with the triple header of the CFO and auditor resigning, as well as an SEC investigation. With a one billion dollar plus market cap when halted, this company now has the distinction of being the largest Chinese company to be halted by regulators. What is also disturbing is that the auditors were Deloitte Touche, a huge firm that is considered to be quite reputable. According to Citron Research, which has uncovered a number of these Chinese irregularities, “every financial statement from its IPO to this date is fraudulent.” . The Deloitte member firm also said unnamed members of Longtop’s management had deliberately interfered with the auditing process and that the firm’s audit files were unlawfully detained. The shares last traded at $18.93.
In a related story, China Media Express,(CCME.PK), which was mentioned on this blog last month, reopened last week on the pink sheets. While prior to the halt in March, they were trading at $11.88, they reopened at $4.55, and proceeded to be hit with a wave of selling. The stock closed today at $1.85.
What is really terrifying investors in Chinese stocks is not this seeming unending stream of alleged fraud, but the fact that a big name accounting firm was auditing their books. In addition, this was not a reverse merger. LTF was taken public in a traditional IPO by none other than Goldman Sachs back in 2007. In fact, the stock actually jumped 85% in the first day of trading. When and where this stock will trade again is anyone’s guess at this point. If history is any guide, this is probably not the last Chinese company to go down in flames.
